The Lula moment

2013-11-10 14:00

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State-led policies that have underpinned Brazil’s miracle decade are in trouble, writes Dewald van Rensburg

When people say Brazil is like South Africa, the evidence usually relates to the scale of economic inequality and maybe the deeply ingrained politics of land ownership.

There are other similarities, like sluggish economic growth, a dependence on commodity exports and evidence of deindustrialisation.

Recently, what the two nations have in common are recurrent protests and, of course, the hosting of the Fifa World Cup (South Africa hosted the quadrennial tournament in 2010 and Brazil will host it next year).

Its racial geography is every bit as polarised as South Africa’s. The IBGE, Brazil’s national statistics agency, this week used data from its 2010 census to produce a startling race map of the country.

The vast rural landmass in the northwestern interior is almost entirely populated by “black or brown” people, while large swathes of the economic heartland of the southeast, including São Paulo and Rio de Janeiro, are 75% to 90% “white”.

Self-declared white people make up slightly less than half the population and, on average, earn twice as much as their compatriots, according to the census. It is one of the very long-lived legacies of Brazil’s origins as a slave-based sugar colony in the 1500s and the major market for African slaves during the transatlantic slave trade era.

The big difference between Brazil and South Africa is size. The country’s population of 200?million is four times that of South Africa. It’s $2.5?trillion (R25.6 trillion) GDP is six times that of South Africa and rivals that of the UK. Its equivalent of Joburg, São Paulo, is a megacity of epic proportions, matched only by its epic traffic jams.

Proportionately, the real difference is employment.

“Brazil is not booming, but its labour market is,” says Fernando de Holanda Barbosa Jr, a professor at the Fundação Getulio Vargas, a leading economics school City Press recently visited as a guest of the Gordon Institute of Business Science’s MBA programme.

“If someone had said in 2002 we’re going to double the minimum wage and half unemployment, I would have said they’re crazy,” he says.

And yet that is exactly what happened.

Unemployment fell from 12% to below 6% in the decade since 2002. But according to Barbosa, this “only reflects the metropolitan areas”.

The fact that monthly employment statistics only reflect the large cities is another legacy of Brazil’s polarised spatial development.

The survey’s sample represents about a quarter of the economically active population.

In the rural areas, unemployment was never as high as in the cities, so the actual drop in the national unemployment rate is probably lower than what the official statistics reflect, says Barbosa.

The latest statistics show a slight increase in unemployment to 5.4% in September from 5.3% in August.

Brazil boasts about the almost instant creation of a “middle class” and the “near eradication” of extreme poverty over the past decade – a narrative that is catching on in Africa as a whole.

Brazil’s President Dilma Rousseff claimed in a recent speech at the UN that the government has “lifted 22?million Brazilians out of extreme poverty in only two years”. That’s nearly one-tenth of the population.

Rousseff and her Workers’ Party predecessor Lula da Silva’s terms “promoted the greatest reduction in social inequality in the last 50 years”, she continued, in reference to the “Lulamoment”, which is currently being promoted locally by union federation Cosatu as a blueprint for labour-friendly development in South Africa.

Many of the gains are attributed to the combination of social security and national minimum wages.

The famous Bolsa Familia benefit, which is conditional on enrolling children in school, averages about R323 a month, more or less the same as Brazil’s poverty line.

The national minimum wage is slightly more than R3?000.

Barbosa sees the Bolsa as basically a payment to slow urbanisation.

The key is the low benefit, he says. It is enough to get kids into school, but not enough to discourage people from working.

He joked that the only people who are discouraged from joining the labour force by such a low payment are people you don’t want in the labour force.

Brazil, as it is known politically, started its existence after Portuguese “discovery” in 1500 as a massive exporter – first of lumber, then sugar cane, then coffee. In between, it had a short-lived gold and silver mining boom and today is one of the major suppliers of the seaborne iron ore trade.

The country is still an export-driven economy with massive dependence on these commodities – one reason economic growth has slumped from 7.5% to roughly the same 2.5% level as in South Africa after the commodities boom went bust. More recently, the country has experienced a consumer-credit boom, which is also starting to taper off.

Much of its astonishing gains against unemployment come from retail.

But the state-led policies that have underpinned Brazil’s miracle decade are in trouble, as low growth puts strain on the government’s funding of massive public sector banks.

According to Barbosa, the state-owned industrial development bank, BNDES, is 60% larger than the World Bank and a key cog in Brazil’s economy, but it is monopolising long-term investment with its favourable interest rates.

Along with state-owned commercial banks, BNDES has extended massive amounts of credit in the Brazilian economy since the economic crisis.

Almost half of the credit in Brazil’s economy belongs to public sector banks, up from 39% before.

BNDES’ new loans last year amounted to almost R1?trillion, compared with the Industrial Development Corporation of SA’s pitiful R16?billion.

But even this must end. Just this week, Brazil’s finance minister, Guido Mantega, announced big cuts in support for public banks.

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