South American Real Estate News

Latin America’s rising middle class is exceeding expectations

Post available in: English

Latin America’s rising middle class is exceeding expectations

The Brazilian newspaper O Estado de São Paulo recently ran an article on the travails faced by Andrea Garoni Sucupira a São Paulo lawyer and mother of two children. She is finding it impossible to hire the live-in maid that traditionally takes care of everything in an upper class Brazilian household. Rather than taking on an informal empregada as her mother did, Andrea has found she has to go through professional agencies that require such things as higher salaries, health insurance, limited working hours and Saturdays off.

Andrea’s domestic management problems stem for a larger and positive transformation in Latin America. As the World Bank’s recent report Economic Mobility and the Rise of Latin America’s Middle Class points out, the region has undergone a tremendous move away from poverty. The report found a profound transformation in the class composition of Latin America between 1995 and 2010, leading to a Latin American middle class numbering 150 million.

Equally significant are social mobility rates, which are marked by impressive upward movement. Of the 45.7% of the region’s population who were poor in 1995 only half were still poor in 2010, but largely now in the ‘vulnerable’ category that sits between poverty and middle class. Overall 43% of all Latin Americans changed economic class during the study period, 41% moving up and only 2% going down.

In part these changes are due to the rapid economic growth that vast parts of the region have experienced due to the commodity boom. The shift away from orthodox neoliberal policies has also had an impact, although the authors found that there was no simple link between gross social spending and individual economic improvement. What seemed to matter more was the targeting of government social programming, with cash transfer programs and education standing out as particularly important.

While the authors found that the economic mobility changes are measured and incremental – unsurprisingly, the rags to riches story remains the exception – the middle class grew at an annualized rate of 6.7% between 2003 and 2009, suggesting that the overall economic growth in the region is having a concrete impact on social development.

For the average Latin American this is all very good news. The implications for business are also good, but slightly more complicated. An overall richer population has obvious consumption implications that increase revenue in sectors related to retail and the provision of services. Where it gets a bit more complicated is on the staffing angle, with the cost of labor rising.

For Brazilians such as Andrea this is already proving an issue, forcing major social changes in how households are run and a leveling of
power dynamics between employer and employee. The situation gets a bit more complicated for firms that have relied on cheap labor as a competitive advantage, particularly in the face of low-cost Chinese competition.

An additional implication that is being strongly felt in countries such as Brazil is that the overall rise in economic activity is placing strains on the qualified labor pool. Competition for experienced general laborers, technical and professional workers is rising, creating a marked upward push on wage rates, which of course cycles around to reinforce the rise of the middle class.

As Andrea has discovered, this changing economic class situation has opened space for new business ventures. The example that has touched her most directly is the rise of employment agencies that organize and manage teams of domestic workers on terms consistent with the new labor laws and market conditions. Underlying this is a shift away from a service sector predicated on near cost-free workers to a dynamic labor market bearing closer resemblance to that found in Australia.

Demand for skilled and semi-skilled labor in Latin America is rising, particularly as employers begin to expect increased productivity for higher wages. This all points to post-secondary technical education and skills upgrading as a major growth sector in Latin America. More importantly, the World Bank study suggests that this emerging educational service market is likely to keep growing in a sustainable manner as the remaining 158 million people in poverty continue their climb up the socio-economic ladder.

Contact the Gateway to South America team to learn about the best investment opportunities in the region. The company is a benchmark for foreign investors wishing to invest in Argentina, Brazil, Chile, Paraguay, Peru and Uruguay, providing expert advice on property acquisition and investment tours.

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Post available in: English


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