wages, as shown in Exhibit 5. Formal job creation reached
historical highs in 2012, bringing unemployment to an
all-time low of 5%. Informal jobs now constitute less than
18% of the economy—a structural change that has also
improved social security contributions and tax revenues.
This phenomenon is relatively recent. Brazil’s formal job
creation was approximately 5 million over the eight years
from 1995 to 2002 and then jumped to around 15 million
over the next eight years, from 2003 to 2010.
The government has worked to reduce poverty and
income inequality through such social policies as the
Bolsa Família income transfers to low-income households. This program provides means-tested subsidies tied
to children’s school attendance and other requirements
and is widely credited with lifting millions of families out
of poverty. Over the past ten years, the government also
increased the minimum wage more than 9% per year on
average, exceeding inflation by a meaningful margin.
Brazil’s dramatic upward social mobility is a break from
decades of persistent income inequality. While still unequal compared to developed markets, Brazil’s Gini coefficient (poverty measure) of 0.54 is now the same as that
of Chile or Mexico, after dropping from a high of 0.61
in 1990. The positive movement in Brazil contrasts with
erosion of the middle class in some developed countries,
where high debt burdens, unemployment, and falling asset values are translating into weaker real estate demand.
As many developed markets stagnate, income and wealth
accumulation in Brazil are likely to lead to capital deepening and increased need for quality real estate.
After some false starts, this is now changing. In 2007,
Brazil embarked on a very ambitious infrastructure
buildup program called the Programa de Aceleração do
Crescimento (PAC), which is starting to bear fruit. The
program was intended to solve many long-standing in-
frastructure issues and prepare the country for the up-
coming World Cup and Olympics. It fell short of initial
expectations because of delays and mismanagement, but
it was relaunched in 2010 as PAC 2 under the presidency
of Dilma Rousseff, a technocrat who has been called the
“mother of the PAC.”
The second phase focuses on such areas as urban infra-
structure, the housing deficit, transportation networks, and
energy exploration, with a planned investment of R$955
billion by 2014. With the relaunch, the government sig-
naled an ideological change and welcomed private invest-
ment in what were previously considered “strategic state
assets,” such as airports, seaports, and highways.
For instance, the Logistics Investment Program
opened up concessions and public-private partnerships
for nine highway projects, twelve railway lines, and four
major airports, with a bidding schedule that started in
2012. So far, airports in São Paulo, Brasília, Campinas,
and São Gonçalo have been auctioned as concessions to
a public-private consortium to secure more than R$16
billion of new investment and enlarge capacity from 14
million to 22 million passengers. Auctions for 500 km
of toll roads and 10,000 km of new railway lines are
scheduled in the first half of 2013, with related investments that could exceed R$133 billion.
Avg. Real Wage (right Axis)
Unemployment (Left Axis)
Exhibit 5: Brazil Average Real Wages and Unemployment
Source: Instituto Brasileiro de Geografia e Estatística
To assure full economic benefits from the demographic dividend and income growth, Brazil’s institutions, policies, and infrastructure must support growth, which can be sustained only
if the economy has the capacity to absorb the rapid increase in
the working population. Brazil made strides on the institutional front in the 1990s as it combated inflation, installed an independent central bank, and approved new laws and regulations
for financial and property markets, but its infrastructure has
been notoriously deficient. For example, Brazil is far behind
China (where the investment-to-GDP ratio is 42%, compared
to Brazil’s 20%), and inadequate infrastructure is consistently
cited as one of the top impediments to doing business.