In Brazilian interior regions, slow growth masks real opportunities
With higher than expected inflation and lower than expected growth, the economic performance of Brazil during 2012 was less than stellar. Companies looking to invest in the country have become hesitant in the face of such indicators and may very well miss out on real opportunities hidden within the country.
When considering moving into the Brazilian market, foreign companies have a tendency to focus on well developed markets in large cities such as São Paulo, Rio de Janeiro, and Brasilia. Though many companies have seen real returns in these markets, by focusing solely on them they risk missing opportunities in other parts of the country that are currently experiencing significant growth.
Outside of Brazil’s large cities the interior of the country is thriving as it continues the long process of urbanization. For example, in 2012, for the first time, consumer spending in the state of São Paulo was greater than the city of São Paulo. Consumers in the interior spent a total of approximately $187 billion, or 50.2% of the total spent in both the city and the state.
This shift is being repeated throughout the country. Ten years ago, consumer consumption in the 27 capitals accounted almost 37% of the country’s total. That number has fallen to below 33%. Between 1999 and 2010, Brazil’s state capitals saw their share of income decline from just under 40% to 34%.
According to Nielson’s market research, supermarket sales in the interior, for example, grew 13.3% compared to 7.8% in the country’s capitals in 2011. In the city of São Paulo, the number of stores grew by 8%, while small and medium sized cities saw the number of stores grow by an average of 13%. It isn’t just consumer spending on basic goods at the supermarket either. Outside the city limits of São Paulo, the number of cars sold grew by just over 7.5% in 2011 more the doubling the rate of growth within the city.
This internal economic evolution is the result of a number of factors. First, the agriculture industry, which has traditionally been centered in the rural interior, has experienced a boom as global demand, particularly in China, increases together with prices. More importantly, rising wages brought on by increased development over the last 15 to 20 years has pushed companies located in larger commercial centers to look for cheaper investment opportunities as well as lower labor and production costs. All of which are abundant outside the major cities.
As these economic shifts continue, foreign companies must shift there thinking as well. Cities like São Paulo and Rio are great places to search for opportunity, but the interior might just be a better place to start.
Sources: Estadão, Folha de São Paulo, Folha do Interior, O Caxiense
For further information on the Brazilian market, please contact Mr. Daniel Berners, dberners@berners-consulting.net.