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DE RUEHSO #0630/01 3001851
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R 271850Z OCT 09
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UNCLAS SECTION 01 OF 04 SAO PAULO 000630 
 
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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 
 
------------------- 
 
 
 
¶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 
 
----------------------------- 
 
 
 
¶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 
 
SAO PAULO 00000630  002 OF 004 
 
 
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 
 
----------------------- 
 
 
 
¶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. 
 
SAO PAULO 00000630  003 OF 004 
 
 
New Middle Class Flexing New Wealth... 
 
--------------------------------------------- ---------- 
 
 
 
¶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 
 
--------------------------------------------- --------------- 
 
 
 
¶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 
 
SAO PAULO 00000630  004 OF 004 
 
 
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 
 
---------------- 
 
 
 
¶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. 
White