BRAZILIAN MIDDLE CLASS ON THE RISE

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E.O. 12958: N/A
TAGS: ECON EFIN EINV ETRD PREL PGOV CVIS BR
SUBJECT: BRAZILIAN MIDDLE CLASS ON THE RISE

REF: REF: 09 BRASILIA 1098


1. (SBU) SUMMARY: Brazil's middle class, as measured in income
terms, has grown rapidly in recent years and now represents
approximately half of the population according to government
figures and independent analysis. Coinciding with this rise in
incomes, more Brazilians are gaining access to property ownership
(home, car, and computer),full time employment positions with
benefits, and educational opportunities. This achievement follows
a history of economic inequality that has traditionally ranked the
country among the most unequal in the world. While Brazil
continues to have above average economic inequality and will face
segments of poverty for years to come, data and experts agree a
shift in economic demographics is underway. Lagging structural
impediments such as the public education system (septel),however,
will likely hamper Brazil's full transition to a middle income
country in the near term. END SUMMARY.



Methodology

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2. (U) Using GOB data, independent researchers at Fundacao Getulio
Vargas (FGV),Brazil's leading business university, have been at
the forefront of quantifying recent income, consumption and
development trends of Brazil's growing middle class. According to
Professor Marcelo Cortes Neri, Director of FGV's Center for Social
Policies, Brazil's socioeconomic classes can be divided into four
basic segments based on household income. Individuals with monthly
household incomes above $2,670 are considered rich, while
individuals between $620 and $2,670 are considered middle class.
The two classes below this are the poor (income between $447 and
$620 per month) and impoverished (income below $447 per month).
[Note: Income calculations in dollars are based on an exchange rate
of USD 1 equivalent to R$1.80. End Note.] Using these categories,
analysts have identified a dramatic improvement in income
distribution among the different classes in Brazil since 2001. The
research performed by FGV is based primarily upon data from
Brazil's official government statistics office (IBGE).



Growing Middle Class

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3. (SBU) Based on FGV research, the Brazilian middle class has
expanded 29 percent over the last seven years to represent 50
percent of the overall population, while the poor and impoverished
segments fell to 40 percent of the population. In addition, the
rich segment grew from eight percent to ten percent. The amount of
movement between the different classes has been especially notable.
During the five years between 2003 and 2008, the amount of
impoverished persons has decreased by almost 19.5 million, and the
amount of people in the poor segment decreased by 1.5 million.
[Note: At the end of 2008, Brazil's population was approximately
190 million. End Note.] The following table outlines the change in
the relative size of the four population classes:





Brazilian Socioeconomic Class by Income Level

Class % in 2003
% in 2008

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Rich 8
10

Middle 37
50

Poor 27
24

Impoverished 28
16




4. (SBU) In fact, Brazil was able to reach its Millennium
Development Goal of halving the number of impoverished ten years
ahead of the 2015 deadline. By contrast, the number of persons in
the middle class grew by almost 26 million, while the rich segment
increased by over six million. According to Professor Neri, since
2002, the probability of climbing from the middle class to the
upper class has never been higher, and the probability of falling
to a lower class has never been less.



Falling Inequality

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5. (SBU) FGV's research on the middle class tracks improvements in
official GOB poverty and inequality figures. While rising incomes
can at times exacerbate income inequality, income distribution has
actually improved in Brazil over the last decade. Since posting a
record high level of income inequality at the end of 2001 as
measured by the Gini coefficient index, inequality has dropped
eight percent to 0.55 in the last seven years. According to FGV
research, the average income of impoverished Brazilians increased
by 72 percent during this time, while the increase of the rich
segment was only 11 percent. Professor Neri told Econoff the
primary reasons for the reduction in income inequality are the
overall increase in workers' income, social programs such as Bolsa
Familia (reftel),and the increase in the minimum wage. His
research suggests the reduction in inequality can be precisely
attributed as follows - 67 percent to the increase in work incomes
since 2001, 17 percent to social programs, and 15 percent to the
increase in the minimum wage.




6. (SBU) While lauding the dramatic reduction in poverty in Brazil
in recent years, local experts agree that higher than average
income inequality will remain for the foreseeable future.
Professor Andre Portela of the School of Economics at Fundacao
Getulio Vargas told Econoff the dramatic reduction in poverty will
slow over time and a core portion of this segment will be unable to
advance. Portela said the slowdown will come primarily as a result
of the lack of quality education opportunities for the poorest
Brazilians. Ricardo Paes de Barros, a Director at Brazil's
official government economic statistics office (IPEA),similarly
cited the quality of the educational system as an impediment.
Barros lamented to Econoff that GOB attempts to raise the
qualification standards of its teachers, increase wages paid to
teachers, and install computers in schools, have yet to result in a
higher quality school system. Portela and Barros agreed it is
essential for Brazil to improve its schools to provide further
opportunities for poor Brazilians to raise their standard of
living.

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New Middle Class Flexing New Wealth...

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7. (U) In addition to income levels, analysts mapping Brazil's
economic demographics point to numerous other indicators as
evidence of Brazil's rising middle class. One employment indicator
is the increase in formal sector jobs, which under Brazilian law
entitles the employee to a full benefits package, including health
insurance for the employee and the employee's family, pension
benefits, and job security. According to Brazil's Ministry of
Labor and Employment, the number of formal jobs increased 45
percent from 27.2 million to 39.4 million during the past seven
years.




8. (U) Home ownership has also been on the rise. According to
IBGE, the number of homes with access to utility services and a
home computer increased by almost 140 percent to 18 million in the
last five years. At the same time, urbanization has continued to
increase with the proportion of homes in the city rising to 85
percent in 2008 from 81 percent in 1997.




9. (U) Luxury items that were previously consumed solely by the
wealthy are now increasingly being purchased by lower income
Brazilians. For example, research by Brazil's national car
association, ANFAVEA, shows the middle class is purchasing new cars
at a much faster rate than the rich. In 2008, the middle class
purchased 1.17 million new cars, an increase of over 700 percent
from the 146,000 new cars purchased in 1990. By contrast, the rich
segment bought 1.02 million new cars in 2008, representing an
increase of only 164 percent during the same time period.
Similarly, internet usage is increasing and broadening rapidly. A
recent survey performed by Ibope Nielsen Online found Brazilians
across socio-economic lines have more access to the internet and
spent the most time on the internet per month of the ten nations
surveyed, including the United States.




10. (U) Despite the weaknesses of the public education system, the
growth of the Brazilian middle class is also coinciding with a
gradually more educated population. According to IBGE, an
increasing number of Brazilians are graduating both high school and
college. The percentage of the population that has completed at
least 11 years of school (equivalent to high school) in the last
seven years rose from 22 to 32 percent, and the percentage of those
obtaining the equivalent of a college degree increased from five to
seven percent.



...And Fueling Demand for Consular Services

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11. (SBU) Another indicator of Brazil's increasing affluence is
the rise in international travel. According to U.S. Department of
Commerce official figures, the number of Brazilians traveling to
the U.S. increased 121 percent from 348,965 in 2003 to 769,233 in

2008. In terms of new potential travelers, the increase has been
even more pronounced with Mission Brazil non-immigrant visa
adjudications rising 214 percent--from 159,019 in fiscal year 2004
to 499,041 in fiscal year 2009. In fact, of all the emerging BRIC
countries (i.e. Brazil, Russia, India and China),only Brazil
showed an increase in demand for U.S. non-immigrant visas during

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fiscal year 2009. As a result of this continued high demand,
Consulate General Sao Paulo is now the top non-immigrant visa post
worldwide.



COMMENT

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12. (SBU) While Brazil continues to suffer from a higher than
average degree of economic inequality, analysts agree the divide
between rich and poor has decreased in recent years and the middle
class has grown in relative terms. Brazil's rapid recovery from
the global economic crisis is likely to further spur the country's
gradual transition to a broad-based middle class nation. This
significant reduction in poverty and rise in middle and upper
classes is one of the most significant factors in President Lula's
continuing sky-high popularity and a potential factor in bolstering
support for his cabinet chief and the likely Workers Party (PT)
presidential candidate in 2010, Dilma Rousseff. It is also having
an workload impact on our consular visa services, evidenced by Sao
Paulo's rise to the top visa adjudicating post in the world, as
increasingly affluent Brazilians seek to visit the U.S.
Nevertheless, a "two Brazils" phenomenon--first world development
levels in large swaths of Southern Brazil and major urban centers
contrasted by significant pockets of third world poverty in
northeast Brazil and the urban peripheries--is likely to be visible
for the foreseeable future. Likewise, until structural constraints
such as Brazil's public education system (septel) are addressed,
reduction of the most pronounced poverty will remain difficult.
END COMMENT.




13. (U) This cable was cleared by Embassy Brasilia, Consulate
Recife, and Treasury Sao Paulo.
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