Cost of Brazil: country has the third highest bank fee in the world
Publication date: July 26, 2024, 12:04 AM, Last updated: July 26, 2024, 1:13 AM
Brazil has the third highest bank interest rate in the world, behind only Zimbabwe and Madagascar. This information comes from a survey by the World Bank. According to the survey, the high interest rate charged by banking institutions has a direct impact on the cost of credit, financing for working capital and corporate investments. Data from the Central Bank shows that, in May 2024, the average interest rate for companies was 18.2% per year.
Newton Marques, an economist and member of the Regional Economic Council of the Federal District (Corecon-DF), states that, with regard to interest rates in Brazil, the problem has never been resolved because of the extremely high difference between the rate of collection and the rate of application of financial resources.
“This bill is placed on the lap of the Central Bank, which is unable to improve this relationship. Then the Central Bank says that the problem is fiscal. So this game of passing the buck continues, but this also ends up causing serious problems for the so-called Brazil Cost. When we compare it with other countries, we see that our banking spread is really off the radar of economies that are able to normalize.”
Brazil Cost
The Brazilian Cost reflects a set of structural, bureaucratic and economic difficulties that increase the cost of and hinder new investments, in addition to harming the business environment. The Brazilian production sector spends R$1.7 trillion more than the average for countries in the Organization for Economic Cooperation and Development (OECD). This amount is greater than the GDP of several other South American countries, such as Paraguay, Bolivia, Uruguay, Venezuela and Peru.
National goods and services have also been losing competitiveness, with waste reaching 20% of the national Gross Domestic Product (GDP). The data comes from the National Confederation of Industry (CNI), released on the 18th.
According to Leo de Castro, vice-president of CNI, tax complexity is one of the most relevant factors of the Brazilian Cost.
“But that’s not all. The cost of distributing products in Brazil is very high; bureaucracy is very high; the cost of collecting taxes is very high; the quality of human capital is low; Brazilian education has a large deficit; access to credit and the cost of credit are also factors that reduce our competitiveness. So, all of this means that Brazilians have to pay more for products than they would if there were no such waste,” he explains.
The Competitive Brazil Movement (MBC) highlights 12 factors that make up the Cost of Brazil: opening; capital financing; personnel; infrastructure; basic inputs such as energy; legal certainty; tax issues; participation in global value chains; bureaucracy; innovation; fair competition and challenge; and closing the business. These factors can be grouped into five obstacles for Brazilian entrepreneurs: accessing capital, employing human capital, facing the cost of logistics infrastructure, obtaining legal certainty, and paying taxes.
The CNI, together with the 27 state industry federations and 74 industrial associations, released the Declaration for the Development of Industry and Brazil. In the document, the industrial sector presents ten guiding principles to drive the country’s development agenda. Five of them are directly related to the Brazil Cost: modern and efficient tax system; cost of capital; human resources trained for the new economy; regulatory quality; and cheaper and more efficient energy and transportation.
Taxes are one of the biggest dilemmas that entrepreneurs face when they start their own business, since there are both municipal and state charges and taxes that affect the company’s revenue, usually destined for the federal government. Therefore, it is important to be aware and know what the average tax rates are, which can help in the financial and tax planning of those who are thinking of starting a business.
Furthermore, a survey carried out by Endeavor’s Entrepreneurial Cities Index determined the Brazilian cities with the lowest and highest costs for entrepreneurs, highlighting Brasília (DF), Florianópolis (SC), Caxias do Sul (RS) and Joinville (SC), with the lowest costs, and Aracaju (SE), João Pessoa (PB), Maceió (AL) and Campo Grande (MS), with the highest.
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By Brasil 61
