Informal economy already makes Brazil a great Paraguay


Author: Vladimir Goitia and Jander Ram

Source: O Globo On Line, 08/06/2004

Sao Paulo - Informality in the economy has taken on alarming proportions, says a study of almost 60 pages produced by the McKinsey consultancy at the request of the Brazilian Institute of Competitive Ethics (Etco): it affects 39,8% of the Gross Domestic Product (GDP), an index that exceeds more than 20 % the average of 133 countries analyzed in a recent World Bank survey; and 50% of the country's non-rural jobs. In agribusiness, the document says, the situation is more dramatic - 90% of the workforce is in the informal sector.

Such indicators led economist Eduardo Giannetti da Fonseca to place Brazil in the same degree of “nightmare” as Paraguay, with a high incidence of the group that makes up informality, such as tax evasion, evasion and avoidance, and counterfeiting, piracy and smuggling of goods. “To a large extent, Brazil has already become a great Paraguay,” said Giannetti, after attending the seminar “Parallel Brazil vs Economic Growth”, held on Monday, in São Paulo, by the Etco Institute.

According to the McKinsey study, the set of informality affects the construction, pharmaceutical, food retail and fuel sectors more. "Companies have shown an interest in seeking the foreign market to escape informality, a kind of unfair competitor to our companies", commented the president of the Etco Institute, Emerson Kapaz.

“Tax evasion pays, crime pays,” said the chairman of the Board of Directors of Grupo Pão de Açúcar, Abílio Diniz, recalling that Brazilian informality generates a profitability of 300% for companies, while in countries like Mexico, this gain does not exceed 75%. “There is no logistics or productivity capable of facing the informal”, he added, while also informing, based on the McKinsey document, that 54% of retail trade is in the informal sector. "But I have the impression that it is 80%", he complained. According to him, much of this irregularity relies on the complacency of the national industry, which accepts the “tour” of intra-state invoices, to collect less ICMS, despite the fact that the goods remain within the States.

The results of the debates at the seminar indicated that the reduction of the Brazilian tax burden, which currently stands at around 38% of GDP, is a key element for the country to mitigate the problem of informality. The governor of São Paulo, Geraldo Alckmin (PSDB), reported the experience lived in the State with the reduction, at the beginning of this year, of the ICMS of fuel alcohol from 25% to 12%. "The collection increased by 7% after adopting this measure", he informed.

The Etco Institute also suggests that Brazil adopt models of victorious experiences in combating informality such as those applied in Spain, where formal employment jumped from 47% of the Economically Active Population in 1994 to 60% in 2002. Another essential item of this The agenda, says the institute, will be the simplification of bureaucratic procedures for opening, maintaining and closing companies.