Why Are Prices in Brazil So High ?
Foreigners are regularly surprised and scared by prices in Brazil. The cost of living in a Brazilian capital can easily top the cost of living in New York or Paris. Manufacturers don’t understand why their products are so expensive in Brazil, and often suspect their Brazilian partners of greed or worse. That is usually not the case. The reasons for the high prices in Brazil are mostly structural. Let’s look at a few of them:
Taxes — The tax burden is unbelievably heavy. I have covered the basics of the Brazilian (deranged) tax system in my post Lying on a Splendid Cradle: A No-Nonsense Introduction to Brazilian Taxes. You have to read it to believe it.
The Cost of Transactions — Also known as “the Brazil cost”, it is a result of many separate factors: excessive regulation, overreaching government interference in every aspect of society and business, generalized lack of trust (which results in the need to triple-verify everything and to require tons of paperwork), pointless bureaucracy and outdated labor relations. The non-existent or crumbling infrastructure (think roads, ports, airports) raises transportation and insurance costs. The inability of the State to provide basic services — health care and safety, for instance — forces businesses to pick up the tab for private services. The bottom line is that running a business (and even shutting down one) is much more expensive than in other comparable economies.
Special Interests — It has forever been the policy of Brazilian governments to fence off market segments and industries to protect them from “predatory” competition. For half a decade we could only buy computers “made” in Brazil. We are one the least-open economies in the World. A multitude of laws, regulations and taxes are in place to guarantee that Brazilians will have to pay more for a lower-quality domestic product rather than have the chance to buy a cheaper, higher-quality one.
Uncertainty — The legal and legislative uncertainty affects respect for contracts and prevents long-term planning. Courts take forever to solve simple disputes. Taking your products through customs is an emotion-filled adventure. Once upon a time a Brazilian President decreed that all financial assets — personal and corporate — above a few thousand dollars were to remain frozen for a year. Now go run a business.
These are the main factors raising prices in Brazil. Taken together the result is that the very same product can retail here for a price several times higher than in the US market. Brazilian executives fight a much harder battle than his peers in the US or Europe to run a sustainable business. Have some sympathy for them.
Roberto Motta is a Rio de Janeiro-based entrepreneur, consultant, lecturer and writer. He writes on LinkedIn, Medium , Facebook and Quora. He also blogs in Portuguese in his own blog Seis Por Meia Dúzia
