By Sarah de Sainte Croix, Senior Contributing Reporter
RIO DE JANEIRO, BRAZIL – Out of the world’s five major high-growth economies – Brazil, China, India, Mexico and Russia – Brazil is ranked the most expensive country to do business in, according to a recent report. The 2012 Competitive Alternatives survey, released by KPMG International, compares locations in more than a hundred cities in fourteen countries around the world.
Of the five high-growth countries studied, Brazil came out as the least competitive by a significant margin, with just a seven percent cost advantage over the United States.
By comparison, the study found China and India to be the most competitive in the group, with overall business costs 25.8 and 25.3 percent below the U.S. baseline respectively.
Mexico had a 21 percent cost advantage compared to the U.S., and Russia, Brazil’s closest high-growth rival, came in at 19.7 percent – still more than double Brazil’s rating.
The study indicates that high labor costs and heavy taxes are the key factors behind Brazil’s lack of competitiveness.
Roberto Haddad, international tax partner at KPMG Rio de Janeiro, explained “The tax burden in Brazil is one of the highest in the world – additionally, the Brazilian tax system is complex and ever-changing, which makes business in Brazil particularly challenging from a tax perspective.”
Despite the relatively low minimum wage in Brazil, businesses still pay high taxes and benefits. “As for the labor costs, Brazilian legislation is relatively inflexible and, in some aspects, outdated, which makes things even more complex,” described Haddad.
China and India’s competitive advantage, on the other hand, is fueled by low labor costs, with China offering the lowest costs in the manufacturing sector and India in the services sectors.
Brazil performed particularly badly in the digital sector, showing just a 4.3 percent cost advantage over the U.S., making it more expensive for digital endeavors than mature market rivals the Netherlands, the UK and Canada, who came in at 6.6, 8.0 and 14.9 percent respectively.
The report blames this on Brazil’s ‘high indirect tax burden on businesses in this sector.’
The study also indicates that the cost of leasing industrial facilities in Brazil is higher than that in Canada and the United States.
Likewise, renting office spaces is cheaper in the Netherlands and Germany than in the Latin American powerhouse.
The news comes as Brazil struggles to prop up its slumping industrial sector, indicating that significant structural reforms may be necessary if Brazil wishes to continue to count industry as a key pillar in its economic matrix.
However, Mark A. Goodburn, Global Head of Advisory for KPMG International, points out that the advantages of high-growth markets are not just cost-based.
He says that these countries have also experienced a surge in technology, manufacturing capabilities and engineering specialism, giving them an additional edge.
“These markets have earned their place among the leading locations for global business. However, local market complexities in these countries can be intricate, from labor supply to taxes, making a well thought-out business strategy vital to success,” he comments.
Among mature markets – which encompassed Australia, Canada, France, the Netherlands, Germany, Italy, Japan, the UK and the U.S. – the United Kingdom and the Netherlands were ranked as the most competitive for business.