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Sustainable Brazil
Economic 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.
Introduction
This is the second in a series of five           to estimate, for example, the configuration
publications that analyze the horizons of the    of income brackets and their consumption
Brazilian economy for the next decades, with     needs over time – basic planning
a special focus on its most strategic sectors,   information for companies that operate or
examined both from the perspective of their      intend to operate in the country.
importance to domestic revenue generation
and the business opportunities that they         This work, a joint effort between
represent over time. The approach to the         Ernst & Young and the Getúlio Vargas
issues takes into account Brazil’s potential     Foundation, also seeks to qualify Brazil’s
for interaction with the world market, with      development concepts over the next few
scenarios being outlined up to the year 2030.    decades. More important than wondering
The 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 progress
In this study, we present the main results       in the areas of human development
of the scenario model developed by, the          and the energy-environmental equation.
Getúlio Vargas Foundation (FGV-Fundação          The intensity with which such progress
Getúlio Vargas), one of the foremost and         will occur obviously involves a degree
renowned academic institutions in Brazil, in     of uncertainty that is inherent in future
order to allow for a discussion based on an      projections, and, therefore, analyses of
outlook for the world economy. The survey        factors that may favor or delay progress
covers a total of 100 countries, analyzed        are presented.
not only from the standpoint of their
economic aspects, but also in regard to their    The statistical modeling developed for
demographic 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 is
An enhanced view of the behavior of the          not unrealistic to foresee its progressively
main determining factors for the global          qualified participation in the global
scenario is based on the requirement for         context. More than just a desire, this is
valid projections for Brazilian growth.          the consequence of achievements realized
This model is a tool that can supply             since the 1990s. The optimism with regard
information that goes far beyond general         to Brazil, therefore, transcends the limits
economic data, such as population growth         of the art of rhetoric and is based on
and the GDP. With the model, it is possible      solid fundamentals.
4   SUSTAINABLE BRAZIL ECONOMIC GROWTH AND CONSUMPTION POTENTIAL




A lookahead on the
highway 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-predatory
a projection factory. Additionally,     so. Additionally, the observation      use of natural resources has been
it considers critical factors that      of other countries’ histories, of      included in the set of factors that
interfere with such projections         relevant facts that marked the         characterize development. Then the
and, therefore, provides an             evolution of their economies,          concept of sustainability arose.
implicit understanding of risks         allows us to establish premises
and 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 use
dependent upon demographic                                                     of resources, to the detriment
tendencies, investment behavior         A fundamental aspect of this issue     of less costly yet more polluting
premises, economic performance          is that the model outlines the route   forms of production and
records 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 is
any 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 industrial
the acceptable use of natural           2030, is to understand why the         production figures it has achieved
resources – an idea illustrated         economy will take one direction        if it had a restrictive gas emissions
by the refusal to allow unselective     and not another. Scenarios             policy. At the same time, the
deforestation for expansion of          constitute a valuable planning tool    concept expresses growth that
agricultural 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 to
how the interaction of these                                                   guarantee a certain steady pace
factors will determine the
development of wages, profits,
                                        Double                                 of increasing well-being over
                                                                               the years, in the context of a
investment, consumption and             Sustainability                         balanced society that manages
income 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 generally
countries over the last 57 years        accepted reference to qualify the      The reference scenario presumes
have been considered. Even if the       economic production of a society.      a world in which there will always
past performance of an economy          Decades ago, development was           be more pressure for sustainable
does not necessarily reflect its        seen as growth that is reflected in    policies within the ambiguity
future performance, its statistical     proportional progress regarding        described above. For Brazil, this
track record, for instance, does        the quality of life of a population,   sustainability context requires
not allow us to project income          which implies a good level of          that no policies be adopted
growth much higher or lower             income distribution and social         that could provide more growth,
6   SUSTAINABLE BRAZIL ECONOMIC GROWTH AND CONSUMPTION POTENTIAL




but 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 ten
area.                                  disturbing sustainable growth in        years and 3.8% from 2017 on.
                                       Brazil for years, and, in the end,      Thus, in that period, Brazilian GDP
Thus, it is not realistic to think     there would be much greater losses      will grow from US$ 963 billion to
that Brazil will once again achieve    than gains.                             US$ 2.4 trillion, an increase of
the figures verified during the                                                more than 150%.
era of the “economic miracle”.         The above example attempts to
In the beginning of the 1970s, the     show an extreme situation. However,     The conditions for such a result
additional productivity earnings       in general, measures that ignore        are feasible:
were significantly higher and,         the fundamentals of efficient and
at the same time, industrial and       balanced economic administration          an average investment rate of
agricultural frontiers expanded        are laden with the consequences           22.7%;
without restrictions. Today, in        of deviations on the highway to
order for the economy to grow 7%       development. The reference scenario       an expansion of the work force
per 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 higher
have to be re-invested – and the       maturity and will not have serious        than the rate of developed
current level is 21%.                  problems in this regard.                  countries, i.e. 0.1% per year;

As the Brazilian pension structure                                               better education of the work
does not place a priority on the
                                       Without excesses,                         force, rising from 7.8 years of
creation of long-term savings,         GDP will grow 150%                        formal schooling in 2007 to 11.3
such marked additional investment                                                years in 2030;
would only be possible by              The sustainability scenario for
increasing government spending         the Brazilian economy shows the           average productivity increases of
to unprecedented levels or through     tendency to obtain significant            0.93% per year – a figure close to
an unlikely volume of foreign          long-term results, regardless of          the increases in developed
investment. It should be stressed      structural reforms that could             countries (1.05% per year), but
that 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 inflationary
pressures, a high degree of
                                       for example, would increase
                                       income generation capacity,
                                                                               A promising
economic uncertainty.                  but even without such factors           market
                                       Brazil displays a high potential
Economic growth of 7% per year         for improving its position in the       The reference scenario for the
would lead to a corresponding          global context, due both to its         Brazilian economy projects a
increase 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 important
capacity to meet such demand.                                                  improvements in the following
In the job market, the demand          The performance and improvement         indicators:
for labor would bring about            of economic fundamentals over
real salary increases of 6% per        recent years show that it is possible     per capita income increase of
year, a much higher rate than          to achieve an average growth rate         3.1% per year, higher than the
the 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                             15,585.52
2     China                       3,862.19                                   2    China                                   12,755.94
3     India                     2,530.19                                     3    India                        5,265.46
4     Japan                     2,357.55                                     4    Japan                    2,818.44
5     Germany                 1,489.64                                       5    Brazil                   2,507.00
6     Great Britain           1,365.09                                       6    Great Britain           1,924.66
7     France                  1,098.04                                       7    Mexico                  1,854.33
8     Brazil                  1,066.55                                       8    Germany                 1,813.34
9     Italy                  1,019.76                                        9    France                 1,528.25
10    Russia                 823.28                                          10   Italy                  1,340.84
11    Mexico                 820.21                                          11   Indonesia              1,141.27
12    Spain                  723.65                                          12   Russia                 1,136.22
13    Canada                 626.76                                          13   South Korea            1,072.47
14    South Korea            618.77                                          14   Spain                  1,047.66
15    Indonesia              602.14                                          15   Canada                 989.68
16    Turkey                458.89                                           16   Turkey                 974.73
17    Australia             400.60                                           17   Philippines            966.16
18    Argentina             373.76                                           18   Pakistan              734.93
19    Philippines           373.15                                           19   South Africa          729.95
20    Thailand              353.94                                           20   Australia             721.12



Source: Getulio Vargas Foundation
(*) 2005 US$ adjusted for Purchase Power Parity
8    SUSTAINABLE BRAZIL ECONOMIC GROWTH AND CONSUMPTION POTENTIAL




Income distribution
                                                                                                                            2007
Monthly 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
9




increases in workforce productivity     growth of the middle class will
and maturation of age-bracket and       cause a corresponding expansion
family structures.                      in services.

The base of the income pyramid          Over the next 22 years, there
will slim down considerably. Families   will also be a strong increase
with monthly incomes of up to           in housing expenses involving
R$ 1,000, which represented 55.3%       construction, renovation and
of the population in 2007, will be      additional property expenses.
30.5% in 2030 – a good part of them     This market, with a turnover
will have migrated to the income        of R$ 379.2 billion a year today,
range between R$ 1,000 and              will reach R$ 942.5 billion
R$ 2,000. But the range that will       in 2030, mainly due to the
grow most in number of families is      increased demand of the middle
the 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 their
monthly incomes in that range and       part, are going to cause a large
in 2030 this percentage will rise       part of the 2.9% growth in the
to 22.9%.                               food market. The same social
                                        segment will also pace growth
There will also be a higher             in non-durable goods, which will
proportion of families in higher        double by 2030.
income brackets, which means a
widening at the top of the pyramid.     The reference scenario allows
During that process, there will be a    for a detailed mapping of demand
major increase in the total volume      per income class in several
in the income brackets above R$         activity lines, as will be shown
4,000 – from 36.2% in 2007 to           in greater detail on the Map
55.6% in 2030. This movement will       of Consumption Opportunities
consolidate over the next 22 years      (starting on page 18). In the
and will lead relatively quickly to     next chapter of this overview, we
an increase in Brazilian families’      present the general conditions for
sophistication in terms of demand.      sustainable development for the
                                        world and Brazil.

Opportunities
in sight
The process of consumer market
qualification brings about a new
range of opportunities in business
segments. The areas of education
and health, for example, will have
an annual growth rate of 4.4% up
to the year 2030. In general, the
10 SUSTAINABLE BRAZIL ECONOMIC GROWTH AND CONSUMPTION POTENTIAL




Under the banner
of sustainability

Globalization and                                      premise was adopted with
                                                       regard to globalization, making
                                                                                                         global interdependence are rare,
                                                                                                         and it would be comfortable to
Uncertainties                                          it a determining element in the                   assume a continuous deepening
                                                       analysis of economic relations both               of interrelations at the global
For the preparation of the                             globally and locally. Nowadays,                   level. However, it was deemed
reference 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 process
Worldwide 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 increased
amounting to more than 10% of capital stock. Portfolio: Investment in shares amounting to less than
10% 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, it
been 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 the
increased the productivity of capital   world economy are important for
on a worldwide level.                   the reference scenario because:

Although globalization is still going     trade expansion and free fund
strong, there are factors that may        traffic are key factors
be able to restrain it and even           determining economic growth on
cause 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 Conflict
That said, it does not appear to be     The geopolitical and demographic
an exaggeration to suppose that         dimensions are essential to qualify
the current stage of globalization      the globalization process and
is 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%.
13




Europe will post lower growth rates,      justified by broader customer and
of 2.1% and 1.4%, respectively.           partner relationship policies.
The best performers will be Great
Britain (1.9% and 1.5%) and               Implementation of more efficient
Spain (2.2% and 1.5%). Russia             and sustainable technologies,
will suffer a slump in its pace of        pursuant to historical capitalistic
development (from 3.2% to 0.7%)           development, will initially be
as a consequence of gradually             carried out in developed countries
decreasing productivity and the           that invest heavily in research
significant reduction of its work         and development and are subject
force, caused by the ongoing              to more intense pressures for
process of population decline             advances in this area. This process
observed since the 1990s.                 will only be repeated in developing
                                          countries, especially China, after a
The general factors that affect           considerable delay.
growth are the same as those
established 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 been
added to these general principles is
the environmental question that is
expressed by a growing demand for
productive systems that consider
sustainability even if this causes
losses in terms of efficiency. In this
context, the use of proportionally
more expensive supplies – recycled
paper, for example – is justified as it
means that a company is adopting
an environmentally responsible
stance. The additional expenses
that cause an immediate loss in
efficiency 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 Nations

Source: Getulio Vargas Foundation
(*) 2005 US$, adjusted for Purchasing Power Parity.
16 SUSTAINABLE BRAZIL ECONOMIC GROWTH AND CONSUMPTION POTENTIAL




A 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 meets
The reference scenario presumes           towards international competition,                  safety criteria, gradually reduces
that the international supply of          one that even accepts sophisticated                 emissions and introduces energy
energy will undergo substantial           alternatives with environmental                     efficiency measures.
medium- and long-term                     commitment.
transformations. The continuing
rise in the price of oil will make it     In the reference scenario, the
                                                                                              Brazil’s projection
feasible to open up new production        proportions of available energy                     as a player
areas, extract liquid fuels from          sources on both a global and Brazilian
non-conventional oil sources and          level will be reordered, considering                World economic projections
implement alternative energy              sustainability of choices in terms                  indicate a significant increase
sources. Developing countries will        of economic competitiveness,                        in the importance of Brazil, the
increase their share of world energy      physical resource availability and                  fruit of a record of constant
consumption, and the supply of            environmental impacts. The evolution                growth and stability. Brazil will
energy should include major inputs
from biofuels and nuclear energy.

However, a broad spectrum of factors
should be taken into account as they
create uncertainties with regard to       Return on capital of the 20 biggest economies in 2030
the behavior of the energy market
up to the year 2030. The scenario is
based on two critical factors for the
energy market: a) the proportion
of 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 is
one that achieves a balance between
a restrictive scenario - tightly closed
                                          Source: Getulio Vargas Foundation
to international exchange and limited     (*) Ordered by GDP in 2030. (**) “World” amounts refer to the sum of the GDPs of the 100
in access to diversity in energy          economies considered in this study. (***) 2005 US$ billion.
17




post growth of 4% per year               The evolution of education in Brazil
between 2007 and 2030, which
will make it jump from 10th to 8th
place in the ranking of the world’s                                                                                  11.3
biggest economies.                       Years of formal education

                                            Economically active population                            10.4
In regard to the evolution of               Total population
                                                                                         9.6
developing countries, it needs
                                                                             8.9
to be emphasized that China will
                                                                   8.2
already have become the second                                                                                        7.5
biggest economy in 2017 and                         7.5
that, over the next two decades,                                                                       6.8
Mexico and India will overtake                                                            6.2
Spain and Canada and be ranked                                               5.6
                                                                   5.1
right below Brazil.
                                                     4.6

The 3% per capita income growth of
                                                 2005             2010       2015        2020          2025         2030
Brazil between 2007 and 2030 will
be well above the world average of
                                         Source: Getulio Vargas Foundation
1.7%, which will make this indicator
double in 23 years. Payroll volume
will reach US$ 880.3 billion in
2030, due to its growth at a rate of
3.5% per year, making it the eighth
largest economy in the world.
Payroll growth similar to that of
Brazil’s will be verified in Mexico,     at 12.5 years. Educational levels          Nowadays, the countries of the
and it is likely that such a pace will   will tend to converge globally,            European Union and the United
only be exceeded by the impetus of       although even while considering            States hold 60% of the total capital
China, growing as it does without a      this aspect Brazilian development          invested in the world, understood as
commitment 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 of
the productivity level of their work     patterns will occur in the context         capital accumulation in the developing
forces. They are part of the small       of a decline in average world              countries. Brazil, for example, today
group 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 reach
in the developed countries. In this      – this factor leads to a decline in        approximately 3%.
respect, the increased educational       the general savings level due to
levels of Brazilian labor is relevant,   increasing pension and medical             One bit of promising information
given that by 2030 it will reach the     assistance expenses. This will             for Brazil is that its return on capital
current educational level of workers     occur in a more accentuated                investment will remain high compared
in developed countries, with an          manner in Europe and in the NAFTA          to other developing countries. High
average of more than 11 years of         countries, which will significantly        levels of investment in China and India
studies completed. This indicator        change the distribution of the             will narrow the business opportunity
is 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 better
of the US, which currently stands        developing countries.                      return possibilities.
18 SUSTAINABLE BRAZIL ECONOMIC GROWTH AND CONSUMPTION POTENTIAL




Premises for a                          education, governments will
                                        surely need more funds. Even
                                                                                depends in turn on the
                                                                                gradual reduction of interest
better country                          so, tax collection should be            rates, improvements in financing
                                        increased at a slower pace,             mechanisms and reduction in
The achievements of the economic        below that of total revenues,           credit risks.
policies since the 1990s have           in such a manner that the tax
established 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 and
high sustained growth for the           being done. In this context,            elimination of red tape in all
next 22 years. However, there is a      a more simplified tax structure         three branches of government
potential for even higher economic      would make the environment              would generally work in favor of
growth, an achievement which will       more appropriate for business,          economic growth by establishing
be dependent upon the adoption          which is a determinant for              a more favorable and safer
of specific – and feasible – policies   investments.                            environment for business.
in the years ahead. They will have
a strong influence on investment,       Infrastructure: investing in            Education: once universal
productivity and consequent             infrastructure once again in Brazil     education is established at the
economic growth. In general, the        can come about through the              basic level, Brazil will be able to
factors that can improve Brazil’s       advancement of regulation over          progress gradually in its
performance 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
19




years. It is estimated that a realistic   the average schooling projected    significant effects on the evolution
set of changes would considerably         for the work force from 11.3 to    of per capita income, which would
increase investment in the areas of       12.5 years in 2030, would have     grow at 3.8% per year, higher than
energy, transportation, sanitation        direct effects on the efficiency   that projected for the South Korean
and housing, with effects on the          of the Brazilian economy,          and Chilean economies. In this
entire economy. The average               diminishing the gap that exists    scenario, Brazil would overtake
investment rate would reach 24%           today with regard to global        Uruguay in terms of human
of the GDP leading up to 2030, 1.3        technological borders.             development and would get closer
percentage point above the rate                                              to the levels that will be reached
considered 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 would
investment rate in 2007.                  would raise growth projections.    increase to 4% per year, bringing
                                          The average GDP growth rate        Brazil closer to Japan (the fourth
In addition, a more accentuated           between 2007 and 2030 would        largest consumption market in
advance in education, increasing          be hiked from 4.0% to 4.6% with    2030) quicker.




Brazil in two scenarios


                                                                              2007 to 2030
                                                                                 Reference         Scenario
Indicators                                        1990-2007                       scenario       with advances

Investment (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         Scenario
Indicators                                             2007                       scenario       with advances

GDP in US$ billion*                                     962.9                     2,398.4          2,718.2
GDP per capita in US$*                                  5,092                      10,269          11,638

Source: Getulio Vargas Foundation
(*) Amounts in 2005 terms.
20 SUSTAINABLE BRAZIL ECONOMIC GROWTH AND CONSUMPTION POTENTIAL




Map of consumption
opportunities
The 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 for
between optimism and pessimism and           year period.                               non-durable consumer goods, such
always seeks to accept the most likely                                                  as food, tobacco and beverages, fuel
proposition as valid, chosen largely         Due to economic growth and social          and transportation in general, will
according to the historical record of        mobility, consumption growth rates are decrease. In contrast, expenses with
each variable. This model indicates a        higher in income brackets with more        living, health and education will grow
deep 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 growth
of its social pyramid, with the growth of    over the next 22 years. The share          Taking families with incomes between
middle 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 evolution
This means that companies that               R$ 8,000 in total consumption will         of the total income of this bracket
operate or intend to operate in the          increase from 22.4% in 2007 to 37.2%       will have a stronger effect on the
Brazilian market have to adjust to a         in 2030. The share of families with        consumption of personal hygiene and
transforming business environment.           monthly incomes of up to R$ 2,000 in       cleaning products and health services
This dynamism is expressed by a 3.8%         the total volume will diminish by 15% in than on the demand for clothing and
average 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 consumption
In absolute figures, this market will        The maturation of the Brazilian            profile is easier when comparing the
leap from total sales of R$ 1.41 trillion    consumer market will cause significant     current configuration with the projections



Consumption per income bracket


                                    2007                          2030
Family 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                             2030
Product line                          R$ billion*          %           R$ billion*         %      % per year
Natural 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) foods
of Opportunities” (page 18). The                    R$ 4,000 and R$ 16,000 will                 and food consumed outside
differences in the two consumption                  account for 47.5% of this additional        homes;
periods, in each product line and                   slice, or R$ 896.8 billion more
social class, map the possibilities                 consumed;                                   the market share for natural
for new business in the Brazilian                                                               foods will be a very small
economy. In general, the following                  26.7% of the consumption increase           part of the growth of the
points 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 will
105.20   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 POTENTIAL




The evolution of income distribution           which today represent 16.4%                 It can be said that the expected
and the demographic dynamics                   and 53.3% of the national                   income and consumption growth
over the next 22 years will also               consumption respectively, will              in the less developed regions
bring about changes in the regional            grow slower than the national               on a global level up to the year
consumer market composition.                   average. As a consequence,                  2030 should also apply to the
Consumption expenses for the                   there will be an increase in the            Brazilian scenario, regionally
South and Southeast regions,                   shares of the other regions.                speaking.




Consumption per region



                                    2007                           2030
Regions                             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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Project and editing management:      Getulio Vargas Foundation Team    Technical staff:
Mitizy Olive Kupermann                                                 Edney Cielici Dias (editorial, research and editorial
                                     Technical coordination and        consulting), Ana Maria Castelo (real estate sector
Editorial coordination:              content development:              research), Otávio Mielnik (energy sector research),
Rejane Rodrigues                     FGV Projetos                      Robson Ribeiro Gonçalves (agribusiness research),
(MTB 22.837)                                                           Jorge de Oliveira Pires (industrial competitiveness
                                     Project director:                 research), Ana Lélia Magnabosco (research of
Printing and design:                 César Cunha Campos                indicators)
Milena Tavares Teves
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Infographs:                          Ricardo Simonsen
Infografe
                                     Coordinator:                      This is a publication of the Communication
Revision:                            Fernando Garcia                   and Brand Management Department of
Beatriz Marchesini                   (in charge of scenario model)     Ernst & Young Brazil.
Ernst & Young
 A       SUSTAINABLE BRAZIL ECONOMIC GROWTH AND CONSUMPTION POTENTIAL
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Ey Sustainable Brazil Economic Growth

  • 1. A Sustainable Brazil Economic growth and consumption potential
  • 2. 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.
  • 3. Introduction This is the second in a series of five to estimate, for example, the configuration publications that analyze the horizons of the of income brackets and their consumption Brazilian economy for the next decades, with needs over time – basic planning a special focus on its most strategic sectors, information for companies that operate or examined both from the perspective of their intend to operate in the country. importance to domestic revenue generation and the business opportunities that they This work, a joint effort between represent over time. The approach to the Ernst & Young and the Getúlio Vargas issues takes into account Brazil’s potential Foundation, also seeks to qualify Brazil’s for interaction with the world market, with development concepts over the next few scenarios being outlined up to the year 2030. decades. More important than wondering The 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 progress In this study, we present the main results in the areas of human development of the scenario model developed by, the and the energy-environmental equation. Getúlio Vargas Foundation (FGV-Fundação The intensity with which such progress Getúlio Vargas), one of the foremost and will occur obviously involves a degree renowned academic institutions in Brazil, in of uncertainty that is inherent in future order to allow for a discussion based on an projections, and, therefore, analyses of outlook for the world economy. The survey factors that may favor or delay progress covers a total of 100 countries, analyzed are presented. not only from the standpoint of their economic aspects, but also in regard to their The statistical modeling developed for demographic 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 is An enhanced view of the behavior of the not unrealistic to foresee its progressively main determining factors for the global qualified participation in the global scenario is based on the requirement for context. More than just a desire, this is valid projections for Brazilian growth. the consequence of achievements realized This model is a tool that can supply since the 1990s. The optimism with regard information that goes far beyond general to Brazil, therefore, transcends the limits economic data, such as population growth of the art of rhetoric and is based on and the GDP. With the model, it is possible solid fundamentals.
  • 4. 4 SUSTAINABLE BRAZIL ECONOMIC GROWTH AND CONSUMPTION POTENTIAL A lookahead on the highway 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
  • 5. 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-predatory a projection factory. Additionally, so. Additionally, the observation use of natural resources has been it considers critical factors that of other countries’ histories, of included in the set of factors that interfere with such projections relevant facts that marked the characterize development. Then the and, therefore, provides an evolution of their economies, concept of sustainability arose. implicit understanding of risks allows us to establish premises and 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 use dependent upon demographic of resources, to the detriment tendencies, investment behavior A fundamental aspect of this issue of less costly yet more polluting premises, economic performance is that the model outlines the route forms of production and records 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 is any 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 industrial the acceptable use of natural 2030, is to understand why the production figures it has achieved resources – an idea illustrated economy will take one direction if it had a restrictive gas emissions by the refusal to allow unselective and not another. Scenarios policy. At the same time, the deforestation for expansion of constitute a valuable planning tool concept expresses growth that agricultural 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 to how the interaction of these guarantee a certain steady pace factors will determine the development of wages, profits, Double of increasing well-being over the years, in the context of a investment, consumption and Sustainability balanced society that manages income 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 generally countries over the last 57 years accepted reference to qualify the The reference scenario presumes have been considered. Even if the economic production of a society. a world in which there will always past performance of an economy Decades ago, development was be more pressure for sustainable does not necessarily reflect its seen as growth that is reflected in policies within the ambiguity future performance, its statistical proportional progress regarding described above. For Brazil, this track record, for instance, does the quality of life of a population, sustainability context requires not allow us to project income which implies a good level of that no policies be adopted growth much higher or lower income distribution and social that could provide more growth,
  • 6. 6 SUSTAINABLE BRAZIL ECONOMIC GROWTH AND CONSUMPTION POTENTIAL but 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 ten area. disturbing sustainable growth in years and 3.8% from 2017 on. Brazil for years, and, in the end, Thus, in that period, Brazilian GDP Thus, it is not realistic to think there would be much greater losses will grow from US$ 963 billion to that Brazil will once again achieve than gains. US$ 2.4 trillion, an increase of the figures verified during the more than 150%. era of the “economic miracle”. The above example attempts to In the beginning of the 1970s, the show an extreme situation. However, The conditions for such a result additional productivity earnings in general, measures that ignore are feasible: were significantly higher and, the fundamentals of efficient and at the same time, industrial and balanced economic administration an average investment rate of agricultural frontiers expanded are laden with the consequences 22.7%; without restrictions. Today, in of deviations on the highway to order for the economy to grow 7% development. The reference scenario an expansion of the work force per 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 higher have to be re-invested – and the maturity and will not have serious than the rate of developed current level is 21%. problems in this regard. countries, i.e. 0.1% per year; As the Brazilian pension structure better education of the work does not place a priority on the Without excesses, force, rising from 7.8 years of creation of long-term savings, GDP will grow 150% formal schooling in 2007 to 11.3 such marked additional investment years in 2030; would only be possible by The sustainability scenario for increasing government spending the Brazilian economy shows the average productivity increases of to unprecedented levels or through tendency to obtain significant 0.93% per year – a figure close to an unlikely volume of foreign long-term results, regardless of the increases in developed investment. It should be stressed structural reforms that could countries (1.05% per year), but that 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 inflationary pressures, a high degree of for example, would increase income generation capacity, A promising economic uncertainty. but even without such factors market Brazil displays a high potential Economic growth of 7% per year for improving its position in the The reference scenario for the would lead to a corresponding global context, due both to its Brazilian economy projects a increase 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 important capacity to meet such demand. improvements in the following In the job market, the demand The performance and improvement indicators: for labor would bring about of economic fundamentals over real salary increases of 6% per recent years show that it is possible per capita income increase of year, a much higher rate than to achieve an average growth rate 3.1% per year, higher than the the rise in productivity, causing of 4% per year between 2007 and rate over the last 17 years (1.3%
  • 7. 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 15,585.52 2 China 3,862.19 2 China 12,755.94 3 India 2,530.19 3 India 5,265.46 4 Japan 2,357.55 4 Japan 2,818.44 5 Germany 1,489.64 5 Brazil 2,507.00 6 Great Britain 1,365.09 6 Great Britain 1,924.66 7 France 1,098.04 7 Mexico 1,854.33 8 Brazil 1,066.55 8 Germany 1,813.34 9 Italy 1,019.76 9 France 1,528.25 10 Russia 823.28 10 Italy 1,340.84 11 Mexico 820.21 11 Indonesia 1,141.27 12 Spain 723.65 12 Russia 1,136.22 13 Canada 626.76 13 South Korea 1,072.47 14 South Korea 618.77 14 Spain 1,047.66 15 Indonesia 602.14 15 Canada 989.68 16 Turkey 458.89 16 Turkey 974.73 17 Australia 400.60 17 Philippines 966.16 18 Argentina 373.76 18 Pakistan 734.93 19 Philippines 373.15 19 South Africa 729.95 20 Thailand 353.94 20 Australia 721.12 Source: Getulio Vargas Foundation (*) 2005 US$ adjusted for Purchase Power Parity
  • 8. 8 SUSTAINABLE BRAZIL ECONOMIC GROWTH AND CONSUMPTION POTENTIAL Income distribution 2007 Monthly 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
  • 9. 9 increases in workforce productivity growth of the middle class will and maturation of age-bracket and cause a corresponding expansion family structures. in services. The base of the income pyramid Over the next 22 years, there will slim down considerably. Families will also be a strong increase with monthly incomes of up to in housing expenses involving R$ 1,000, which represented 55.3% construction, renovation and of the population in 2007, will be additional property expenses. 30.5% in 2030 – a good part of them This market, with a turnover will have migrated to the income of R$ 379.2 billion a year today, range between R$ 1,000 and will reach R$ 942.5 billion R$ 2,000. But the range that will in 2030, mainly due to the grow most in number of families is increased demand of the middle the 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 their monthly incomes in that range and part, are going to cause a large in 2030 this percentage will rise part of the 2.9% growth in the to 22.9%. food market. The same social segment will also pace growth There will also be a higher in non-durable goods, which will proportion of families in higher double by 2030. income brackets, which means a widening at the top of the pyramid. The reference scenario allows During that process, there will be a for a detailed mapping of demand major increase in the total volume per income class in several in the income brackets above R$ activity lines, as will be shown 4,000 – from 36.2% in 2007 to in greater detail on the Map 55.6% in 2030. This movement will of Consumption Opportunities consolidate over the next 22 years (starting on page 18). In the and will lead relatively quickly to next chapter of this overview, we an increase in Brazilian families’ present the general conditions for sophistication in terms of demand. sustainable development for the world and Brazil. Opportunities in sight The process of consumer market qualification brings about a new range of opportunities in business segments. The areas of education and health, for example, will have an annual growth rate of 4.4% up to the year 2030. In general, the
  • 10. 10 SUSTAINABLE BRAZIL ECONOMIC GROWTH AND CONSUMPTION POTENTIAL Under the banner of sustainability Globalization and premise was adopted with regard to globalization, making global interdependence are rare, and it would be comfortable to Uncertainties it a determining element in the assume a continuous deepening analysis of economic relations both of interrelations at the global For the preparation of the globally and locally. Nowadays, level. However, it was deemed reference 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 process Worldwide 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 increased amounting to more than 10% of capital stock. Portfolio: Investment in shares amounting to less than 10% of capital stock. the allocable efficiency of world
  • 11. 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, it been 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 the increased the productivity of capital world economy are important for on a worldwide level. the reference scenario because: Although globalization is still going trade expansion and free fund strong, there are factors that may traffic are key factors be able to restrain it and even determining economic growth on cause 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 Conflict That said, it does not appear to be The geopolitical and demographic an exaggeration to suppose that dimensions are essential to qualify the current stage of globalization the globalization process and is relatively stable and, even in the prospects for both sustainability
  • 12. 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%.
  • 13. 13 Europe will post lower growth rates, justified by broader customer and of 2.1% and 1.4%, respectively. partner relationship policies. The best performers will be Great Britain (1.9% and 1.5%) and Implementation of more efficient Spain (2.2% and 1.5%). Russia and sustainable technologies, will suffer a slump in its pace of pursuant to historical capitalistic development (from 3.2% to 0.7%) development, will initially be as a consequence of gradually carried out in developed countries decreasing productivity and the that invest heavily in research significant reduction of its work and development and are subject force, caused by the ongoing to more intense pressures for process of population decline advances in this area. This process observed since the 1990s. will only be repeated in developing countries, especially China, after a The general factors that affect considerable delay. growth are the same as those established 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 been added to these general principles is the environmental question that is expressed by a growing demand for productive systems that consider sustainability even if this causes losses in terms of efficiency. In this context, the use of proportionally more expensive supplies – recycled paper, for example – is justified as it means that a company is adopting an environmentally responsible stance. The additional expenses that cause an immediate loss in efficiency by increasing costs are
  • 14. 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$.
  • 15. A World 18,892 Per capita GDP in 2030* 3.5% Economic growth between 2007 and 2003 0.9% Increase of the work force between 2007 and 2030 Country Great Britain 46,968 1.7% 0.1% France 41,844 1.6% 0.0% Portugal 26,353 1.1% -0.3% Spain 40,542 1.8% -0.1% Germany 39,642 1.0% -0.6% Russia 20,766 1.8% -0.9% Europe 34,847 1.7% -0.2% Asia and Oceania 17,314 4.8% 0.8% Middle East and Country Northern Africa Japan 42,113 0.8% -0.8% 8,895 China Korea 32,379 44,572 6.5% 2.7% 0.1% -0.4% 2.4% India 6,213 3.4% 1.5% 1.4% Australia 52,188 2.9% 0.5% Aging of the world’s population Life expectancy Sub-Saharan 80 in years Average age Africa 2,984 68 73.6 3.8% 2.6% 56 44 47.9 32 35.1 26.9 20 1950 1970 1990 2010 2030 Source: United Nations Source: Getulio Vargas Foundation (*) 2005 US$, adjusted for Purchasing Power Parity.
  • 16. 16 SUSTAINABLE BRAZIL ECONOMIC GROWTH AND CONSUMPTION POTENTIAL A 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 meets The reference scenario presumes towards international competition, safety criteria, gradually reduces that the international supply of one that even accepts sophisticated emissions and introduces energy energy will undergo substantial alternatives with environmental efficiency measures. medium- and long-term commitment. transformations. The continuing rise in the price of oil will make it In the reference scenario, the Brazil’s projection feasible to open up new production proportions of available energy as a player areas, extract liquid fuels from sources on both a global and Brazilian non-conventional oil sources and level will be reordered, considering World economic projections implement alternative energy sustainability of choices in terms indicate a significant increase sources. Developing countries will of economic competitiveness, in the importance of Brazil, the increase their share of world energy physical resource availability and fruit of a record of constant consumption, and the supply of environmental impacts. The evolution growth and stability. Brazil will energy should include major inputs from biofuels and nuclear energy. However, a broad spectrum of factors should be taken into account as they create uncertainties with regard to Return on capital of the 20 biggest economies in 2030 the behavior of the energy market up to the year 2030. The scenario is based on two critical factors for the energy market: a) the proportion of 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 is one that achieves a balance between a restrictive scenario - tightly closed Source: Getulio Vargas Foundation to international exchange and limited (*) Ordered by GDP in 2030. (**) “World” amounts refer to the sum of the GDPs of the 100 in access to diversity in energy economies considered in this study. (***) 2005 US$ billion.
  • 17. 17 post growth of 4% per year The evolution of education in Brazil between 2007 and 2030, which will make it jump from 10th to 8th place in the ranking of the world’s 11.3 biggest economies. Years of formal education Economically active population 10.4 In regard to the evolution of Total population 9.6 developing countries, it needs 8.9 to be emphasized that China will 8.2 already have become the second 7.5 biggest economy in 2017 and 7.5 that, over the next two decades, 6.8 Mexico and India will overtake 6.2 Spain and Canada and be ranked 5.6 5.1 right below Brazil. 4.6 The 3% per capita income growth of 2005 2010 2015 2020 2025 2030 Brazil between 2007 and 2030 will be well above the world average of Source: Getulio Vargas Foundation 1.7%, which will make this indicator double in 23 years. Payroll volume will reach US$ 880.3 billion in 2030, due to its growth at a rate of 3.5% per year, making it the eighth largest economy in the world. Payroll growth similar to that of Brazil’s will be verified in Mexico, at 12.5 years. Educational levels Nowadays, the countries of the and it is likely that such a pace will will tend to converge globally, European Union and the United only be exceeded by the impetus of although even while considering States hold 60% of the total capital China, growing as it does without a this aspect Brazilian development invested in the world, understood as commitment 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 of the productivity level of their work patterns will occur in the context capital accumulation in the developing forces. They are part of the small of a decline in average world countries. Brazil, for example, today group 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 reach in the developed countries. In this – this factor leads to a decline in approximately 3%. respect, the increased educational the general savings level due to levels of Brazilian labor is relevant, increasing pension and medical One bit of promising information given that by 2030 it will reach the assistance expenses. This will for Brazil is that its return on capital current educational level of workers occur in a more accentuated investment will remain high compared in developed countries, with an manner in Europe and in the NAFTA to other developing countries. High average of more than 11 years of countries, which will significantly levels of investment in China and India studies completed. This indicator change the distribution of the will narrow the business opportunity is 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 better of the US, which currently stands developing countries. return possibilities.
  • 18. 18 SUSTAINABLE BRAZIL ECONOMIC GROWTH AND CONSUMPTION POTENTIAL Premises for a education, governments will surely need more funds. Even depends in turn on the gradual reduction of interest better country so, tax collection should be rates, improvements in financing increased at a slower pace, mechanisms and reduction in The achievements of the economic below that of total revenues, credit risks. policies since the 1990s have in such a manner that the tax established 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 and high sustained growth for the being done. In this context, elimination of red tape in all next 22 years. However, there is a a more simplified tax structure three branches of government potential for even higher economic would make the environment would generally work in favor of growth, an achievement which will more appropriate for business, economic growth by establishing be dependent upon the adoption which is a determinant for a more favorable and safer of specific – and feasible – policies investments. environment for business. in the years ahead. They will have a strong influence on investment, Infrastructure: investing in Education: once universal productivity and consequent infrastructure once again in Brazil education is established at the economic growth. In general, the can come about through the basic level, Brazil will be able to factors that can improve Brazil’s advancement of regulation over progress gradually in its performance 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
  • 19. 19 years. It is estimated that a realistic the average schooling projected significant effects on the evolution set of changes would considerably for the work force from 11.3 to of per capita income, which would increase investment in the areas of 12.5 years in 2030, would have grow at 3.8% per year, higher than energy, transportation, sanitation direct effects on the efficiency that projected for the South Korean and housing, with effects on the of the Brazilian economy, and Chilean economies. In this entire economy. The average diminishing the gap that exists scenario, Brazil would overtake investment rate would reach 24% today with regard to global Uruguay in terms of human of the GDP leading up to 2030, 1.3 technological borders. development and would get closer percentage point above the rate to the levels that will be reached considered 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 would investment rate in 2007. would raise growth projections. increase to 4% per year, bringing The average GDP growth rate Brazil closer to Japan (the fourth In addition, a more accentuated between 2007 and 2030 would largest consumption market in advance in education, increasing be hiked from 4.0% to 4.6% with 2030) quicker. Brazil in two scenarios 2007 to 2030 Reference Scenario Indicators 1990-2007 scenario with advances Investment (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 Scenario Indicators 2007 scenario with advances GDP in US$ billion* 962.9 2,398.4 2,718.2 GDP per capita in US$* 5,092 10,269 11,638 Source: Getulio Vargas Foundation (*) Amounts in 2005 terms.
  • 20. 20 SUSTAINABLE BRAZIL ECONOMIC GROWTH AND CONSUMPTION POTENTIAL Map of consumption opportunities The reference scenario, as has been in 2007 to R$ 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 for between optimism and pessimism and year period. non-durable consumer goods, such always seeks to accept the most likely as food, tobacco and beverages, fuel proposition as valid, chosen largely Due to economic growth and social and transportation in general, will according to the historical record of mobility, consumption growth rates are decrease. In contrast, expenses with each variable. This model indicates a higher in income brackets with more living, health and education will grow deep 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 growth of its social pyramid, with the growth of over the next 22 years. The share Taking families with incomes between middle 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 evolution This means that companies that R$ 8,000 in total consumption will of the total income of this bracket operate or intend to operate in the increase from 22.4% in 2007 to 37.2% will have a stronger effect on the Brazilian market have to adjust to a in 2030. The share of families with consumption of personal hygiene and transforming business environment. monthly incomes of up to R$ 2,000 in cleaning products and health services This dynamism is expressed by a 3.8% the total volume will diminish by 15% in than on the demand for clothing and average 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 consumption In absolute figures, this market will The maturation of the Brazilian profile is easier when comparing the leap from total sales of R$ 1.41 trillion consumer market will cause significant current configuration with the projections Consumption per income bracket 2007 2030 Family 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.
  • 21. 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 2030 Product line R$ billion* % R$ billion* % % per year Natural 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) foods of Opportunities” (page 18). The R$ 4,000 and R$ 16,000 will and food consumed outside differences in the two consumption account for 47.5% of this additional homes; periods, in each product line and slice, or R$ 896.8 billion more social class, map the possibilities consumed; the market share for natural for new business in the Brazilian foods will be a very small economy. In general, the following 26.7% of the consumption increase part of the growth of the points 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%.
  • 22. 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$billion at 2007 prices; (**) Contribution to the growth of each product line; (***) Contribution of each product line to the growth of total consumption.
  • 23. 23 A new portion of the consumer market, in the amount of R$ 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 will 105.20 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. 24 SUSTAINABLE BRAZIL ECONOMIC GROWTH AND CONSUMPTION POTENTIAL The evolution of income distribution which today represent 16.4% It can be said that the expected and the demographic dynamics and 53.3% of the national income and consumption growth over the next 22 years will also consumption respectively, will in the less developed regions bring about changes in the regional grow slower than the national on a global level up to the year consumer market composition. average. As a consequence, 2030 should also apply to the Consumption expenses for the there will be an increase in the Brazilian scenario, regionally South and Southeast regions, shares of the other regions. speaking. Consumption per region 2007 2030 Regions 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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  • 26. Ernst & Young A SUSTAINABLE BRAZIL ECONOMIC GROWTH AND CONSUMPTION POTENTIAL Assurance | Tax | Transactions | Advisory About Ernst & Young Ernst & Young is a global leader in assurance, tax, transaction and advisory services. Worldwide, our 130,000 people are united by our shared values and an unwavering commitment to quality. We make a difference by helping our people, our clients and our wider communities achieve potential. www.ey.com.br © 2008 EYGM Limited. All rights reserved. This is a publication of the Communication and Brand Management Department The full or partial reproduction of the contents of this publication is allowed provided the source is quoted.