Why is everything so expensive in Brazil? I’m Brazilian and lived there most of my life and back then I quite never understood why until I came across this article by the Economist and it all make sense: high taxation combined with a lack of competitiveness. The Brazilian Real has been in a free-fall for the last 12 months and it is slowing down the national industry sector.

According to research by the Federação das Indústrias do Estado de São Paulo (Fiesp), a product manufactured in the country is on average 34.4% more expensive than a similar imported, which somewhat ‘kills’  its competitiveness. “Today, the industry sector pays 2.8 times more tax than its participation in the country’s GDP,” says José Ricardo Roriz Coelho, director of the Department of Competitiveness and Technology of Fiesp (Decomtec). “As for the exchange rate, the rise in the US dollar this year eases part of this disadvantage, but does not makes things easier. The exchange rate is an important competitive tool, but does not solve the problem. We must improve our efficiency. “

Inevitably, the crisis has come where it was most feared: the labor market. The clothes manufacturing segment should end the year with 65,000 layoffs in the country, with 18,000 only in São Paulo – 150 companies have shut down in the state in the first half of the year. The uncertainty about the national production is so great that most factories chose to close its manufacturing operation and import everything from China.

And not only the industry chose to buy from China but also final consumer chose that too. Let’s take a look at the Alibaba Group for instance: with Brazilians having more access to the internet and the appealing prices of Aliexpress (their online retail service), the site has become the third most used in the country behind eBay and Amazon. Even with import taxes and shipping costs that can double the cost – it still makes the deal worthwhile. The long wait for the delivery is not a deal-breaker either, Brazilians don’t mind waiting one month or so for their goods to arrive.

I think that the globalization and e-commerce is and will be inevitable, especially for the emerging economies – consumers will always seek the best prices and deals. The only concern is how Brazil companies will survive this shift.

This post was originally featured on EmergingEquity.org

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